The Role of Cronyism in Arab Capitalism
This chapter argues that cronyism is a key component of a broader system of insider–outsider divisions in Arab political economies that also extends to labor markets. While economic dualism and insider privileges exist all over the developing world, the division is particularly deep and rigid in Arab countries. It results from a legacy of deep state involvement in the Arab economies under which states’ ambitions have increasingly outstripped their resources. Scarce resources have led to a de facto restriction of material privileges to insider groups, abetted by a legacy of deep bureaucratic intervention that lends itself to the creation of regulatory rents. Insider protection results in low levels of cooperation and trust between state, business, and workers, and creates an equilibrium of low skills and low productivity that hampers private-driven growth in the region. This argument is developed mostly on the basis of descriptive, cross-country data.